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TMI Blog2018 (2) TMI 1691X X X X Extracts X X X X X X X X Extracts X X X X ..... rect deletion of additions made in pursuance of Sec. 153A proceedings in these assessment years. Consequently, pending assessment proceedings before AO on the date of search, got abated and sec. 153A proceedings against the assessee is valid in respect of AYs. 2012-13 and 2014-15 and scrutiny assessment for AY 2015-16 u/s. 143(3) of the Act is valid Aggregation of WDV of block of assets - Held that:- Since the assets of M/s.MSL after amalgamation have become assets of assessee company by operation of Law it falls in to the “Block of assets” of the assessee company from 01.04.2009 and though such assets, non-functional, yet they cannot be segregated and depreciation has to be allowed taking the first year as AY 2010-11 onwards and WDV to be calculated for AY 2012-13 as discussed above and we order the AO to calculate the WDV accordingly and allow the same in accordance to law. Grounds 6, 7 and 8 for AY 2012-13 are therefore stands allowed. Disallowing the claim of assessee in respect to brought forward loss and claim of allowance of unabsorbed depreciation in the light of BIFR sanctioned scheme - Held that:- So far as former objection is concerned, the same is factual and AO is dire ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expenses 60, 309 5 (b) PF & ESI u/s.36(1) (va) 3, 03, 447 Not allowing Depn. On asset of 1, 32, 78, 000 6, 7 & 8 Malanpur Steel Ltd. merged vide BIFR order B/F loss of Malanpur Steel Ltd and vide BIFR order. 58, 17, 10, 822 9 Unabsorbed depn. For AYs 2004-05 & 06-07 vide BIFR order 6, 57, 59, 533 10 Interest u/s. 234B r/w 234B(3) 4, 43, 28, 510 11 & 12 Int. u/s. 234D 18, 01, 501 13 4 2012-13 Validity of order u/s. 153A 1, 2, 3 & Addl. Ground 1 Bogus Purchase 8, 66, 49, 802 3 (a) Prior Period expenses 60, 309 (b) PF & ESI u/s. 36 (1) (va) 3, 03, 447 5 Not allowing Depn. On assets of Malanpur Steel Ltd merged vide order of BIFR. 1, 14, 79, 000 6, 7 & 8 Not set off of b/f loss of Malapur Steel Ltd. 121, 06, 26, 360 9 U/S. 36(1) (va) 30, 75, 281 10 Prior period expenses 71, 911 11 Not granting Credit of TDS 7, 01, 72, 804 13 Interest u/s. 234B 14 5 2013-14 Validity of order u/s.153A 1, 2, 3 & Addl. Ground 1 Not allowing depn. On assets of Malanpur Steel Ltd. 99, 29, 000 4, 5 & 6 Set off of B/f loss and unabsorbed depn. Allowed in AY 10-11 & 11-12 of Malanpur Steel Ltd. -now 91, 70, 02, 240 7, 8 & 9 & Addl. Grs. 2, 3 & 4 Set o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... malgamated w.e.f. 01.04.2009 by retrospective operation of the BIFR order dated 04.09.2012, the fact is that the said unit M/s. MSL has not even started functioning. This information about non-functioning of M/s.MSL was also an incriminating fact and according to him even the BIFR order itself is in the nature of incriminating material and, therefore, he contended that the AO has all the powers u/s 153A of the Act to make appropriate addition/disallowance and the depreciation for the nonfunctional assets of M/s. MSL cannot be extended to absurd limits when the fact is that from 1998 onwards M/s. MSL unit has been closed down and depreciation cannot be claimed. Without prejudice to the aforesaid submissions, the Ld. CIT, DR also contended that if the original assessments cannot be disturbed without incriminating material, he wondered as to how the assessee is making new claim on the basis of BIFR order, when Hon'ble Supreme Court in CIT vs. Sun Engineering (1992) 198 ITR 297 (SC) though in the context of reopening of assessment u/s 147/148 of the Act, has held that such action i.e. (reopening assessment for escape of income) is for the benefit of revenue and the assessee cannot make ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hose assessments for those years cannot be said to be pending before the AO on the date of search. The Ld.AR also brought to our notice that for AY 2013-14, the assessment was made u/s 143(1) of the Act and since no notice for scrutiny was issued before the time limit prescribed by the statute, in other words, the time limit to pass the 143(2) notice got barred after 30.09.2014, therefore, on the date of search i.e. on 23.12.2014, the assessment pertaining to AY 2013-14 cannot be said to be pending before the AO. We have gone through the records and the following chart, will give a birds-eye view on the date of events which took place before the search. Sl. No. Assessment Year Original Assessment u/s Pending before AO On the date of search Order By AO Date of search Remarks 1. 2009-10 143(3) Not pending 143(3)dated 28.12.2011 23.12.2014 So, assessment is not pending on the date of search i.e. 23.12.2014 2. 2010-11 143(3) Not pending 143(3)dated 28.03.2013 -Do- -Do- 3. 2011-12 143(3) Not pending 143(3)dated 31.03.2014 -Do- -Do- 4. 2012-13 153A/143(3) Abated -Do- Proceedings u/s. 143(2) was pending 5. 2013-14 143(1) Not Pending 143(1) -D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and circumstances, the BIFR order dated 04.09.2012 cannot be said to be an incriminating material which was unearthed during the search conducted on the assessee's premises on 23.12.2014 and, therefore, cannot be treated as an incriminating material. Coming to the contention of the Ld.CIT, DR, that fact regarding M/s. MSL had not started functioning came to the notice of the revenue, only during search proceedings and, therefore, should be considered as incriminating material, is also unacceptable. We note that M/s MSL, a steel factory had been closed on 4.3.2000 by Deptt. Of Labour affairs, State Govt. of MP much prior to search. This fact of closing down of the unit only triggered the proceedings before BIFR and AAIFR. There is no new development claimed by the appellant in respect of its amalgamated unit i.e. M/s. MSL, other than the statutory claim arising due to retrospective operation of amalgamation ordered by BIFR. The order of original assessment in respect to the assessee company for AY 2011-12 has been passed after noticing the above order of BIFR. Moreover, the AO in his impugned order (153A order) has nowhere stated that during search only he came across this fact or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the six years previous to the relevant AY in which the search takes place. The AO has the power to assess and reassess the 'total income' of the aforementioned six years in separate will be only one assessment order in respect of each of the six 'AYs " in which both the disclosed and the undisclosed income would be brought to tax". Although Section 153 A does not say that additions should be strictly made on the basis of evidence found in the course of the search, or other post-search material or information available with AO which can be related to the evidence found, it does not mean that the assessment "can be arbitrary or made without any relevance or nexus with the seized material. Obviously an assessment has to be made under this Section only on the basis of seized material." v) In absence of any incriminating material, the completed assessment can be reiterated and the abated assessment or reassessment can be made. The word 'assess' in Section 153 A is relatable to abated proceedings (i.e. those pending on the date of search) and the word 'reassess' to completed assessment proceedings. vi. Insofar as pending assessments are concerned, the jurisdiction to make the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as also given its imprimatur to the aforesaid approach of the Tribunal. That apart, learned senior counsel appearing for the respondent, argued that notice in respect of Assessment Years 2000-01 and 2001-02 was even time barred." 9 Support, is also drawn from the following judgments: i) BiswanathGarodiaVs.DCIT (2016) 76 taxmann.com81 ii) CIT Vs.Continental Warehousinhg (NhavaSheva) Ltd (2015 374 ITR 645). iii) Jai Steel (India) Jodhpur Vs. ACIT (2013) 259 CTR 281 iv) CIT Vs.Deepak Kumar Aggarwal (2017) 398 ITR 586 v) Principal CIT Vs.DipakJashvantalaPanchal (2017) 397 ITR 253. vi) Principal VIT vs.Lalit Jain (2017) 384 ITR 543 vii) Pr.CIT vs. Dvangi Alias Rupa (2017 394 ITR 184 viii) Chintels India Ltd Vs. DCIT (2017) 397 ITR 416 ix) Smt.AnjliPanditVs.ACIT (2017) 157 DTR (Mum) (Tri.) 17 x) Pr.CITVs.MeetaGutgutia (2016)395 ITR 526. 10 We are thus of the considered opinion that since there is no incriminating material unearthed during search in respect of the concluded assessments, no addition/disallowance could be made by the AO for AYs 2009-10, 2010-11, 2011-12 and 2013-14. Therefore, the addition/disallowance made in impugned assessments for the AY ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g assessment proceedings before AO on the date of search, got abated and sec. 153A proceedings against the assessee is valid in respect of AYs. 2012-13 and 2014-15 and scrutiny assessment for AY 2015-16 u/s. 143(3) of the Act is valid, so, grounds 1, 2, 3 and Additional Ground no. 1 for AY 2012-13, 2014-15 and 2015-16 are accordingly dismissed. 15 Next, let us take up AY 2012-13 which has abated because the assessment was pending on the date of search. Though we have stated that assessment proceedings after search, is for the benefit of revenue, once the assessment pertaining to an year is pending before AO on the date of search, like in the present case, then by operation of law, the pending assessment before the AO abates in view of the second proviso to sec.153(A) of the Act, and consequently when the AO issues notice u/s 153A, the assessee is required to furnish fresh return of income in pursuance of the said notice u/s. 153A of the Act. It is this return which is filed consequent to the notice u/s 153A which would be subject of assessment by the revenue for the first time in the case of abated assessment proceedings. Consequent to notice u/s 153A, the earlier return filed for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee) which was sanctioned by Hon'ble Calcutta High Court except the steel division M/s. MPISC (later MSL) 8. 2000 ₹ 245.80 cr. Infused by HDCL for capital asset/revenue 9. 16.04.2001 The name of HDCL was changed to MSL 10. 14.06.2002/11.03.2003 MSL Company filed reference in BIFR as a sick company and registered BIFR case No.158/2001. 11. 03.08.2005 Company declared sick in terms of section 3(1)(0) of SICA and PNB appointed as Operating Agency to formulated scheme u/s. 17(3) of SICA 12. 01.04.2009 BIFR was amalgamated with assessee from retrospective date with effect from 01.04.2009. 13. 04.09.2012 BIFR passed order amalgamating M/s. MSL with the assessee company after considering the Income Tax Department's view. 14. 23.12.2014 Search at assessee company premises which led to Sec.153A proceedings. 17 From a perusal of the above stated dates and events which took place, it reveals that the unit of M/s MSL was non-functional from 15.10.1998 till the date of order of BIFR (i.e. 04.09.2012). So when the sick company M/s MSL in their original assessments (pre-amalgamation) claimed depreciation, naturally it was denied to it by the AO as well as Ld.C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mendment, definition of written down value as contained in Section 43(6) has also been amended and the am, wended provisions read as under: "43(6) - " Written down value" means- (a) ** ** ** (b) ** ** ** (c) In the case of any block of assets, - (i) In respect of any previous year relevant to the assessment year commencing on the 1st day of April, 1988, the aggregate of the written down values of all the assets falling within that block of assets at the beginning of the previous year and adjusted. (A) by the increase by the actual cost of any asset falling within that block, acquired during the previous year; and (B) by the reduction of the moneys payable in respect of any asset falling within that block, which is sold or discarded or demolished or destroyed during that previous year together with the amount of the scrap value, if any, so, however, that the amount of such reduction does not exceed the written down value as so increased; and (ii) in respect of any previous year relevant to the assessment year commencing on or after the 1st day of April, 1989, the written down value of the block of asses in the immediately preceding previous year as reduced by the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eligible for depreciation. In order to simplify the existing cumbersome provisions, the Amending Act has introduced a system of allowing depreciation on block of assets. This will mean the calculation lump sum amount of depreciation for the entire block of depreciable assets in each of the year classes of assets, namely, buildings, machinery, plant and furniture." 19 From a reading of the aforesaid Circular it is clear that the legislature felt that keeping the details with regards to each and every depreciable asset was time consuming for both the assessee and the Assessing Officer. Therefore, the Parliament in its wisdom amended the law to provide for allowing of the depreciation on the entire block of assets instead of each individual asset. The block of assets has also been defined to include the group of asset falling within the same class of assets. 20 Along with the amendment as aforesaid, the Parliament in its wisdom has made another significant and contemporaneous amendment has been made, which need to be taken note. The Parliament has also deleted the provision for allowing terminal depreciation in respect of each assets, which was previously allowable under section 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d as the assets of that unit remained part of the block of assets and were ready for passive use, which was as good as real use. The Assessing Officer, however, was not impressed with the explanation of the assessee and disallowed the depreciation on that unit. The Commissioner (Appeals) dismissed the assessee's appeal. On second appeal, the Tribunal allowed the assessee's claim on two grounds, viz (1) there was a passive user of the assets at Bhopal unit, which would be treated as 'used for the purpose of business' and (2) as it was a case of depreciation on block of assets, the assets of Bhopal unit could not be segregated for the purpose of allowing depreciation and depreciation had to be allowed on entire block of assets". The Head Notes in this case is as under: The position concerning the manner in which the depreciation is to be allowed, has gone a sea change after the amendment of section 32 by the Taxation Laws (Amendment) Act, 1986. [Para 25]. As per amended section 32, deduction is to be allowed - 'In the case of any block of assets at such percentage on the written down value thereof as maybe prescribed'. Thus, the depreciation is allowed on block of assets, and t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ciation in respect of a closed unit at Bhopal (non-used for six years) was disallowed by the AO, which was later allowed by the Tribunal on two grounds (i) there was a passive use of the assets at Bhopal unit, which would be treated as "used for the purpose of business" and (ii) as it was a case of depreciation on block of assets, the assets of Bhopal unit could not be segregated for the purpose of allowing depreciation and depreciation had to be allowed on entire block of assets. The Hon'ble High Court upheld the order of the Tribunal on the 2nd reason stated herein and as discussed above. However, the first reason of Tribunal that passive user of plant and machinery which theory in the facts and circumstances i.e. (six years non-user of unit and no sign of that unit becoming functional) did not find favour with the Hon'ble High Court, wherein their Lordship observed that the "Passive User", in those circumstances, could not be extended to absurd limits. In any case, the Hon'ble High Court upheld the order of Tribunal and accepted that though the assets of the Bhopal unit were not functional since being part of "Block of Assets" they cannot be segregated and depreciation has to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. In the above view question Nos.(a) & (b) formulated do not give rise to any substantial questions of law. Accordingly not entertained." 24 Likewise Gujarat High Court in the case of Nirma Credit and Capital Ltd. v. ACIT reported in 390 ITR 302 has held as under: "8. The record reveals that the reason assigned by the Assessing Officer for rejecting the depreciation is that the assessee had stopped the manufacturing activity and therefore, the question of use of machinery does not arise. However, the CIT(A) reversed the findings of the Assessing Officer on the premise that individual items included in the block are not to be considered separately for the purposes of granting depreciation in light of the amended provisions. We do not find any legal infirmity in the aforesaid view adopted by the first appellate authority since the assessment order itself reveals that it is not the case of Assessing Officer that the assets were not put to use at all. Once the factory building is put to use, it is not possible to restrict the depreciation on the said building by stating that only a portion thereof has been put to use. Similarly, in relation to block of assets, it is not possible t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... incorporated 2. 1989 MP Iron & Steel Co. (MPISC) as steel division of HDCL was formed (steel division, unit of HDCL) later name changed to M/s. MSL 3. 03.1993 MPISC (later Malanpur Steels Ltd. (MSL) company's performance remained unsatisfactory since then. 4. 15.10.1998 Major fire in the sub-station, operation suspended (MPISC later MSL) 5. 20.10.1998 Declared lay off, held by M P High Court as illegal 6. 04.03.2000 The unit closed by the Secretary, Labour Dptt. (Govt. of MP) 7. 04.2000 HDCL Later name change to Malanpur Steel Ltd. (MSL). which was a Public Ltd. Company transferred all its divisions (Engineering, chemical, High-tension insulated) in various places to HEIL (assessee) which was sanctioned by Hon'ble Calcutta High Court except the steel division M/s. MPISC (later MSL) 8. 16.04.2001 The name of HDCL was changed to MSL 9. 14.06.2002/11.03.2003 MSL Company filed reference in BIFR as a sick company and registered as BIFR case No. 158/2001 10. 03.08.2005 Company declared sick in terms of section 3(1)(0) of SICA amd PNB appointed as Operating Agency to formulate scheme u/s. 17(3) of SICA 11. 20.04.2012 BIFR circulated DRS which was rece ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ra 15.1, 15.2, 15.6, 15.9, 15.11, 15.12, 15.13, 15.14, 15.15 for them to follow. ii) Concessions indicated for the authorities/agencies as in Para 15.3, 15.4, 15.5, 15.8 {except sub-para(g)}, 15.10 for them to consider. Therefore ostensibly, there is a difference in these two varieties of concessions indicated by the Hon'ble BIFR which is evident from the insertion of word 'to consider', in the second variety as indicated above. This is further corroborated by the reading of clause (xix) under General Terms and Conditions, as is provided below:- "17. GENERAL TERMS AND CONDITIONS xix) Notwithstanding anything contained hereinabove, the reliefs and concessions to the allowed to the company shall with within the policy guidelines of the concerned State/Central Govt/other Govt Agencies". 11. Thus, it is clear that for State/Central Govt. Agencies the concessions indicated are of the nature of guidelines and not directives, to be considered by the concerned authorities and to be allowed only within the four concerns of the law. This fact, finds force from the order of Hon'ble AAIFR wherein it has clarified the exception provided by Hon'ble BIFR in sub-para (g) of para 15.8 . ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eld as under: "I have considered findings of the AO in the assessment order and the written submission filed by the AR during the appellant proceedings. Regarding brought forward depreciation and business loss I think the AO has very clearly brought it on record from the records of the assessee itself that the steel plant of the assessee is closed since 28-10-1998. As the assessee does not intend to reopen this plant further in the future and the assessee further wants to exit from this business, there is no question of allow-ability of carried forward business loss or depreciation for the steel plant. Further regarding disallowance of depreciation on plant and machinery in the case of M/s MSL, the assessee had preferred an appeal on the same issue before my predecessor and he has given a speaking order vide Appeal No.227/CCXXV/ CIT(A)C-III/08-09 dated 30-11-2010. In this order my predecessor has confirmed the disallowance of depreciation and I find no reason to interfere in findings given my predecessor on the same issue in assessee's own case, therefore assessee's appeal on this issue is also dismissed. The AR has filed a letter along with or order of Hon'ble BIFR dt.06-09-2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and unabsorbed depreciation to assessee company. 31 It was submitted that the relief so granted by the Hon'ble BIFR at para 15.8 of its order contained the following recommendations. "A Direction:- "Clause - 'g': Hindustan Engineering & Industries Ltd. (HEIL) shall be entitled to carry forward and set off of the accumulated losses (including lapses losses) and unabsorbed depreciation as per Income-tax Act, 1961 till such losses are set off and fully against the income in assessment year subsequent to assessment year during which the merger of Malanpur Steel Ltd as above shall take place. The effect of this provision shall be provided in the manner as provided u/s 72A of the IT Act, 1961 or otherwise for a statutory provision for the time being is enforced." 32 Further reliance was placed on following judgments: a) CIT v. J.K. Corporation Ltd. (2011) 331 ITR 303 (Kol) [Pg 153) : Jurisdictional High Court even observed at para 28, 29 "when the Board is satisfied that all conditions are fulfilled for giving consent for taking rehabilitation measures by amalgamation, separate consent by CBDT not required". b) Indian Shaving Products v. BIFR (1996) 218 ITR 140 (SC) [Pg 164] ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny, make a reference to the BIFR for determination of the measures which should be adopted with respect to the company. A "sick industrial company" as defined by section 3(1)(o) means an industrial company (being a company registered for not less than five years) which has at the end of any financial year accumulated losses equal to or exceeding its entire net worth. Section 16 requires the BIFR to make such inquiry as it may deem fit for determining whether any industrial company has become a sick industrial company, inter alia, upon receipt of a reference with respect to such company under section 15. The BIFR may, for the disposal of such inquiry, require an operating agency (OA) to enquire into and make a report with respect to such matters as the BIFR may specify (In this case, Punjab National Bank (PNB) was appointed as operating agency (OA) by BIFR by its order dated 03.08.2005). Under section 17, the Board passes a suitable order for completion of the enquiry made by operating agency. The Board as per Sec.18 having considered everything as mentioned in Sec.17 prepares and sanctions the scheme for revival and rehabilitation with various measures, which includes amalgamation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nancial assistance and concerned financial institutions who have stake in the sick industrial company are notified for consenting and if no consent is received within a particular period then the Boar is to adopt such other measures. For ready reference Sec.19 of SICA Act is give below: "19. Rehabilitation by giving financial assistance - (1) Where the scheme relates to preventive, ameliorative, remedial and other measures with respect to any sick industrial company, the scheme may provide for financial assistance by way of loans, advances or guarantees or reliefs or concessions or sacrifices from the Central Government, a State Government any scheduled bank or other bank a public financial institution or State Level institution or any institution or other authority required by a scheme to provide for such financial assistance being hereafter in this section referred to as the person required by the scheme to provide financial assistance) to the sick industrial company. (2) every scheme referred to in sub-section (1) shall be circulated to every person required by the scheme to provide financial assistance for his consent within a period of sixty days from the date of such ci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Board is empowered by, or under, this Act to determine and no injunction shall be granted by any court or other authority in respect of any action taken or to be taken in pursuance of any power conferred by or under this Act.". 41 Most important provision in this Act which spells out the effect of the Act on other laws can be seen from a perusal of section 32, which reads as under:- "32 Effect of the Act on other laws- (1) The provisions of this Act and of any rules or scheme made there under shall have effect notwithstanding anything inconsistent therewith contained in any other law except the provisions of the (i) Foreign Exchange Regulation Act, 1973 (46 of 1973 and (ii) the Urban Land (Ceiling and Regulation) Act, 1976 (33 of 1976) for the time being in force or in the Memorandum or Articles of Association of an Industrial company or in any other instrument having effect by virtue of any law other than this Act." "(2) Where there has been under any scheme under this Act an amalgamation of a sick industrial company with another company, the provisions of section 72A of the Income-tax Act, 1961 (43 of 1961), shall subject to the modification that the power of the Cent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n CIT Vs. J. K. Corporation Ltd (2011) 331 ITR 303 (Kol), wherein the Hon'ble High Court held as under: "39. In this case, it appears that the Assessing Officer has altogether ignored the legal effect of the scheme taking note of Circular No. 683 dated June 8, 1994 as the consent was not accorded by the Central Government. In other words, the Assessing Officer thought that the circular is having overriding effect over the said provision of the sanctioned scheme. The Appellate Authority, however, did not choose to follow the same course of action but recognized the effect of the scheme but on the facts it did not make the said scheme applicable on various grounds mentioned therein. 40. In the context as aforesaid, we now examine the legal effect of the scheme sanctioned by the BIFR which remains unchallenged. The SICA is a special Act and the scheme framed thereunder is of tremendous implication. So, it is binding upon everyone, as it has assumed the character of conclusiveness by virtue of section 18 sub-section (4) and also sub-section (8). The scheme has mentioned the date on which it will become operative. It has been specifically mentioned that the said scheme would be ope ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 18 of the said Act necessarily implies that the requirements of section 72A of the Incometax Act have been met and the BIFR must exercise the power conferred upon it by section 32(2) of the said Act and make the declaration contemplated by section 72A of the Income-tax Act." 43. In other words, once the scheme is framed by virtue of section 32 sub-section (1) the same overrides all other provisions of law including the Income-tax Act 1961 and also other instrument or document having effect by virtue of any law. The Board derives authority under section 120(6) of said Act which itself is overridden. 44. It appears that the text of the said circular dated June 8, 1994 relied on by the Assessing Officer is clearly inconsistent with the provision of the said section 32(2). 45. Having regard to the language used in section 26 it is clear that neither the civil court nor any other authority including the quasi-judicial authority can pass any order which would impede the operation of the said scheme. In other words, the scheme can be set at naught only by the BIFR or the AAIFR under the said Act itself and not otherwise except by the constitutional provision. 46. In view ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... view no separate opinion need be expressed and however, we add that the assessee is exempted from fulfilling the provisions of sections 80 and 139 of the Income-tax Act, 1961, in view of the BIFR's order dated March 17, 1994, it must be held that the revised return of loss filed by the assessee shall be treated to have been validly filed. 54. While answering question (E) we are of the view that the Tribunal was not right and justified in law not considering and deciding the alternative contention raised on behalf of the assessee that when the original return having been filed within the time allowed under section 139(1) the revised return filed on March 31, 1994, claiming loss was not beyond the time as contemplated in the provision of section 139 sub-section (3) and section 80. 55. Thus the aforesaid reference is disposed of in the above lines."(emphasis given by us) 45 In view of the Hon'ble jurisdictional High Court's order in CIT Vs. J.K. Corporation (supra), we hold that provisions of SICA Act and the scheme sanctioned by the Board will override the Income Tax Act. Moreover, we note that in Morgan Securities and Credit Pvt. Ltd. JT 2007(1) SC 432, the Hon'ble Supre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hi -110 001. 48 The power of CBDT to issue such circular is traceable to section 119 of the Income Tax Act, which contemplates that the CBDT may from time to time issue such orders, instructions and directions to other income tax authorities as it may deem fit for proper administration of the Act and such authorities and all other persons employed in the execution of the said Act shall observe and follow such orders, instructions and directions of the CBDT. 49 The judicial precedents laid by Hon'ble Apex Court and other Hon'ble High Courts which held that CBDT circular is binding on the authorities serving in the Income-tax Department. 50 In Navnit Lal C. Jhaveri Vs. K.K.Sen (1965) 56 ITR 198 (SC), the Hon'ble Supreme Court has an occasion to examine the statutory basis and background of the circulars issued by the Central Board of Revenue under the provisions of the Income Tax Act, and the scope and the effect of such circulars. In that case, the CBDT was empowered to issue circulars under section 5(8) of the Income Tax Act, 1922 and the Hon'ble Supreme Court observed that the circular issued by the CBDT is binding on all officers and persons employed in the administration of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oes not make any distinction in respect of BIFR order, that means if the BIFR scheme purposes recommendations i.e. for being considered, then also during the course of an assessment, AO has to give effect to both the direction as well as the recommendation of BIFR should be given effect and relief should be granted. We note that the earlier circular of dated 22.4.1991 was superseded by another CBDT circular dated 16.2.2000 which clearly spells out that if the BIFR directs any specific relief then it should be allowed and the effect of such order must be given immediately. However, in case, if the BIFR recommends any relief under the Income Tax Act, the relief to be allowed to the assessee, if during the course of proceedings before the BIFR, the views of the Income Tax Department have been considered by the BIFR. Now, let us see whether the views of the Department were taken into consideration by the BIFR before the final order was passed. The fact that the department's view was in fact considered by the BIFR before the order was passed on 04.09.2012 is clear from the pleadings of department in its appeal against BIFR order before the AAIFR wherein we note that the nodal officer of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... MAT under section 115JB of the Income Tax Act 1961 for the period of rehabilitation from 01.04.2009 to 31.03.2015. (f) To exempt/grant relief under section 41(1) apart from other liabilities written back for all liabilities for which relief if granted/sanctioned as per DRS. g) Hindustan Engineering & Industries Ltd. (HEIL) shall be entitled to carry forward and set off the accumulated losses (including lapsed losses) and unabsorbed depreciation as per the Income Tax Act, 1961 till such losses are set off fully against income in the assessment years subsequent to the assessment year during which merger of MSL as above shall take place. The effect of this provision shall be given in the manner as is provided under Section 72A of the Income Tax Act, 1961 or otherwise any statutory provisions for the time being is enforced. h) To all depreciation on plant & machineries of MISC unit of Malanpur Steel Ltd. for the period when the Steel Plant was under suspension of operation/closed/shut down (From October, 1998 to the date of restart). (5) The applicant Department filed its first reply within stipulated time limit vide its letter dated 08-06-2012 to BIFR stating therein in pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the operation of the impugned order dated 16.07.2012 by BIFR and SS-12 dated 04.09.2012. (e) In the alternative, modify the observations in paragraph 2.11 (b) in the sanctioned scheme and prefix the word 'to consider' before sub para. (g) ofpara 15.8 of order dated 16.07.2012 end SS-12 dated 04.09.2012. (f) Pass such other order/direction as is deemed fit in the facts and circumstances of the case." 60 The aforesaid appeal against the said BIFR order (relevant portions of which have been reproduced above, along with prayer before AAIFR) was dismissed by the AAFIR vide order dated 22.03.2013 which is reproduced as below: "Heard the Ld. Counsel for the appellant as well as the caveator. After considering the submissions and perusal of para 15.8(g) of the sanctioned scheme, this authority is of the view that the relief granted under the said para does not override the provisions of section 72A of the Income-tax Act or any other statutory provision for the time being in force. As such, the contention and apprehension of the appellant are completely misplaced. There is no merit in the appeal. The appeal is dismissed accordingly." 61 From perusal of the order of AAIFR (supra) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roval scheme of reconstruction/rehabilitation be given during the course of an assessment after granting all the reliefs under the IT ACT, 1961 including those reliefs were the BIFR had recommended consideration of such reliefs under the IT Act by the Central Government. In supersession of this, the CBDT now directs that wherever the order of the BIFR in an approved scheme of reconstruction/rehabilitation (b) directs that the reliefs be allowed under the I.T. Act, 1961 the effect to such orders be given immediately. recommends that the reliefs under the I.T. Act, 1961 may be considered by the Central Government, the relief be allowed to the assessee if during course of the proceedings before the BIFR, the views of the I. Tax Department have been considered by the BIFR. However, if the order of BIFR has been passed without making I. Tax Department a party or without giving a chance to the I. Tax Department to submit its views the effect of BIFR recommendations is to be given only after such recommendations of the BIFR are considered by the CBDT." 63 From the aforesaid, it is clear that the CBDT's objection/view was considered by the BIFR in terms of Circular which is bind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Government/Central Board of Direct Taxes was necessary in view of the provision of the said Act. Having regard to the above conclusive judgments the only conclusion that flows is that the scheme sanctioned by BIFR is to be allowed in entirety. The objection of the revenue that the scheme provides for consideration of the relief and not for direction of the relief is also contrary to the circular of the CBDT whereby it has been provided that once the Income Tax Department has been heard by BIFR, then such scheme is to be given effect and then it should be kept in mind that there is no distinction between direction and consideration of relief/grant. In the instant case it has been amply demonstrated that the Income Tax Department was heard by BIFR and therefore there remains no occasion to draw adverse inference and deny the legitimate claim arising from the scheme. To sum up the triad comprising of the judgment of the Hon'ble Apex Court in the case of Indian Shaving Products Ltd. v. Board of Industrial and Reconstruction and Another (supra), the Hon'ble Jurisdictional High Court in the case of CIT v. J. K. Corporation (supra) and Circular of Board dated 16.2.2000 (supra) and sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... DRS. (g) …………….. (h) To allow depreciation on plant & machineries of MISC unit of Malanpur Steel Ltd. for the period when the Steel plant was under suspension of operation/closed/shut down (From October, 1998 to the date of restart)" 69 As regard unabsorbed depreciation of ₹ 72.56 crores it is noted that section 32(2) comes into play which provides as under: "2 Where in the assessment of the assessee, full effect cannot be given to any allowance under sub-section (1) in any previous year, owing to there being no profits or gains, chargeable for that previous year, or owing to the profits or gains chargeable being less than the allowance, then, subject to the provisions of sub-section (2) of section 72 and sub38 section (3) of the section 73, the allowance or the part of the allowance to which effect has not been given, as the case may be, shall be added to the amount of the allowance for deprecation for the following previous year and deemed to be part of that allowance, or if there is no such allowance for that previous year, be deemed to be the allowance for that previous year, and so on for the succeeding previous years." 70 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lated loss from AY 2010-11 onwards after amalgamation took effect from 01.04.2009 and consequently in the present assessment year in 2012-13 by virtue of sec.72A(1), the accumulated loss of MSL shall be deemed to be the loss of the assessee company in the previous year in which the amalgamation was effected i.e. AY 2010-11 onwards. As per the definition of accumulated loss given u/s. 72A of the Act, the accumulated loss of M/s. MSL in this case has to be so much of loss of amalgamating company i.e. M/s. MSL, computed under the head "Profit & Gain of Business", which such amalgamating company i.e. M/s. MSL would have been entitled to carry forward and set of under the provision of sec.72 of the Act, as if the amalgamation has not taken place. As per sec. 72 of the Act, where for any assessment year, the net result of the computation under the head profit and gains of business is a loss to the assessee (not loss sustained in a speculation business) and such loss cannot be or is not wholly set off against the income under any head of income in accordance with the provisions of sec.71, so much of the loss as has not been so set off or where the assessee has no income under any other he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in nature as per the CBDT in the facts and circumstances of the case discussed above and the AO is duty bound to give effect to it as such. It should be remembered that BIFR Scheme can override the Income Tax Act as held by jurisdictional High Court in J.K. Corporation Ltd. (supra). Morover, we note that by clause (h) the BIFR recommends to allow depreciation on plant and machinery of MSL unit of Malanpur Steel Ltd. for the period when the steel plan was under suspension of operation/closed/shut down (From October 1998 to the date of restart) also becomes directory in the light of the CBDT circular since the department's view has been considered by the BIFR before sanctioned scheme was passed. Therefore, the intent of the BIFR is very clear and the AO was duty bound to give effect to the order of BIFR since the circular passed by the CBDT is binding on the Income Tax authorities and as held by the Hon'ble jurisdictional High Court that the SICA Act overrides all other statutes except Foreign Exchange Regulation Act, 1973 and Urban Land Ceiling & Regulation) Act, 1976. Therefore, the AO was duty bound to give effect to the order passed by the BIFR and the accumulated loss and the u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... would be counted from the financial year 2002-03. 76 The AO denied the set off on the ground that the losses could not be allowed to be set off beyond 8 years. The CIT(A) deleted the disallowance by observing as under: "Now issue here is whether 8 year's limitation will apply in this case or not. As per the section 72, business loss cannot be set off against business income beyond eight years. However capital gain can never be allowed to be set off against business loss brought forward. Therefore income tax act never allows set off of capital gain against business loss brought forward. However the BIFR under SICA has power to allow any concession it considered appropriate for the revival of the company. As discussed earlier, BIFR has clearly allowed set off of capital gain against accumulated losses. The order nowhere talks of brought forward business losses. The limitation of 8 years applies to brought forward business losses. However accumulated losses have no such limit. The set off is of the accumulated losses against capital gain which are otherwise not permissible under IT Act. Since SICA has overriding power as discussed earlier, the set off of capital gain is pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee should also be entitled to the benefits and the scheme should be construed only keeping in mind the rehabilitation measure. In these circumstances, the contention of the revenue that the scheme has not specifically directed the allowing of deduction under section 43B cannot be accepted as such benefit should be dealt with in the scheme itself. Therefore, the substantial question of law is answered in the negative i.e. against the revenue." 78 Having regard to the above we also notice that the AO held that the claim is not maintainable in the instant year as set off on account of carry forward business loss and unabsorbed of deprecation off stands exhausted in the preceding years and there is no left over business loss brought forward and, unabsorbed depreciation. He has also held that without prejudice any loss that could have been set off in the hands of merged company in the instant year as a result of merger would ultimately be taxed in AY 2013-14 by virtue of section 72A of the Act read with rule 9C of the Rules. On consideration of the above, we are of opinion that, so far as former objection is concerned, the same is factual and AO is directed to allow the claim after co ..... X X X X Extracts X X X X X X X X Extracts X X X X
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